Corruption exists in all economies, whether a frontier market, emerging markets, or developed markets. Corruption, whether legal or not, erodes respect for people in power and harms people who are unwilling to continue the game. The most common types of corruption include:
- A blacklist is a group of companies excluded from commerce. A company can add to a blacklist as punishment for refusing to pay a bribe or for using corrupt practices to get ahead. The World Bank maintains a blacklist of companies that are not eligible to participate in its finances due to bad practices.
- The black market is a general term for illegal trade. Each country has a little black market activity, and it is a major concern for investors.
- Counterfeiting and cutting intellectual property rates products – movies, music, or branded clothing, for example – can cheapen brand equity and erode profits.
- Legitimate competitors can have a hard time staying profitable and, above all, legal.
- Poor customer service by black market sellers can make consumers reluctant to spend money with any company.
A high level of activity on the black market can show the entrepreneurial spirit that can be exploited for good. Some business owners on the black market are delighted that they are legalized when a more stable or business environment emerges, which often drives economic growth when they are free to go above ground. This is exactly what happened in Russia, China, and Eastern Europe.
- Bribes and facilitation commissions are exchanges of money or gifts to lubricate the wheels of commerce. Facilitation payments can be packets of cigarettes, small amounts of cash, or tchotchkes made willingly because they do not cost much more and help get the job done. A bribe is a large payment to someone with significant authority. Instead of $ 20 or a carton of cigarettes to a customs broker, the fee can be $20,000 for the customs agency’s head.
If you think you are being asked for a bribe, but you are not sure, say that you need a receipt for your taxes or for your boss to return home. If you are denied a receipt, you are being asked for a bribe. - Campaign and charitable contributions are often legal payments that are used corruptly. For example, in the United States, a company that wants a law changed gets access to a key legislator making a large contribution to the campaign or giving a considerable amount to the senator’s pet charity.
- Collusion is the practice of sellers who meet to split offers. Collusion can help companies in emerging markets get new customers, but it can also cause a business to be excluded. If companies do not compete on the merits, the distortion of the market can hurt everyone.
- Expensive goods can be a form of indirect bribes. A company agrees to buy supplies at prices above its market value. Sometimes, a company pays higher than normal prices for a related company, such as a subsidiary or a company with members of the shared directory. This practice can create advantages in the management of exchange rates and taxes, or it can simply be a way to spread the wealth around that would otherwise go to shareholders.
Camouflaging the bribe as a legitimate purchase washes the bribe in one, the form of the account reimbursable fiscally deductible expense, but even so, it is corruption. - Phantom jobs are carried out by employees who keep their work, regardless of whether they appear or do not prove incompetent. Often, an international company winning a contract may be required to hire a minimum number of local workers. This legitimate obligation offers the company workers with local experience and the local economy jobs. But when government officials ask that the jobs occupied by people who receive a salary but do not do any work, it is expensive for the company and demoralizing for the employees who come to work and do a good job.
The industries that have the most corruption problems are construction, real estate, and oil and gas. All these industries tend to have large contracts in both scale and dollars. If you invest in these industries, you can run through the anti-bribery restrictions more than in other sectors.
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